FHCO announces first-quarter fiscal 2010 results

January 01, 2016

The UK employee redundancy charges relating to the FC1 to FC2 transition were recorded in the fourth quarter of FY2009.  In connection with the evaluation of its leased U.K. FC1 manufacturing facility, the Company entered into new lease and related agreements (collectively, the "New Lease") with the new owner of the U.K. facility in November 2009. The New Lease replaces the Company's previous lease for its U.K. facility, which had an expiration date of December 10, 2016 and required rental payments of $484,049 per year.  The New Lease expires on the earlier of (1) November 1, 2010 or (2) at least three months after the Landlord provides a notice of termination, but in any event not before May 2, 2010.  The annual rent remains $484,049 per year, which the Company was required to deposit upon execution of the New Lease.  In connection with the New Lease, the Company also made a lease surrender payment of $975,746 to the Landlord on November 2, 2009.  A second and final lease surrender payment of $477,859 was made to the landlord on February 1, 2010.  As of this date, the landlord has not yet provided a notice of termination.

From a cash flow perspective, replacing the previous lease eliminates future payments of approximately $4.3 million (for rent and related expenses) over the remaining term of the previous lease, producing a positive net impact of approximately $2.8 million, after deducting the surrender payments.  

The restructuring costs relating to the lease of approximately $1.9 million, net of the recognition of a deferred gain on sale of the facility, are recorded as a one-time charge in the first quarter of FY2010. The Company expects to incur up to $200,000 in additional restructuring costs, which will be expensed in the period in which they occur.  Per the lease terms, the owner has the right to ask the Company to exit the facility prior to the November 1, 2010 lease expiration date. As the actual lease term is uncertain, there is the potential that part of the charge taken in the first quarter of FY2010 would be reversed if the lease term ends before November 1, 2010.  The potential reversal of part of the charge could be as much as $246,000 if the lease is terminated as of May 15, 2010.  The potential reversal of part of the charge diminishes proportionately over time as the number of months between the early termination date and November 1, 2010 decreases.  In addition to the impact on income, if the lease terminates prior to November 1, 2010, the Company would receive a proportionate refund of its rent deposit.  Such a refund has a positive cash effect but no income statement impact.  

The exit from the new facility lease will complete the FC1 to FC2 transition and related one-time restructuring charges.  While FC1 production has ceased, the Company continues to maintain a significant operating presence in the U.K.

SOURCE The Female Health Company